Monday, April 25, 2011

CHOP stays put and adds space in Wanamaker Building

by Natalie Kostelni

"The Children's Hospital of Philadelphia has finally put another piece of its real estate in place and will remain in the Wanamaker Building in Center City.

In addition to renewing at the building, the hospital will also expand by a significant amount.

A year ago CHOP launched a comprehensive assessment of its real estate needs in the suburbs and downtown and has been chipping away at figuring out where it should be housing employees, researchers and satellite facilities. So far, it has made lease deals in Center City and University City but continues to deliberate what to do in the King of Prussia area.

In its latest deal, the hospital signed a new lease on a total of 252,000 square feet at Wanamaker at 100 Penn Square East. It had been occupying 192,000 square feet in the building and is expanding by roughly 60,000 square feet.

While Wanamaker was always an option, CHOP had also considered relocating to Centre Square at 15th and Market streets and 10 Penn Center at 1801 Market St. In the end, Wanamaker won out.

“It’s the best option for CHOP,” said Doug Carney, interim senior vice president of facilities at the hospital.

Terms of the deal weren’t disclosed other than that the lease was for the “long term.”

Though the hospital did look elsewhere, some brokers and other real estate observers had expected CHOP to remain in the Wanamaker building, although the expansion came as a surprise.

“It was anticipated they were going to renew.”

The hospital has a lot of moving parts, including two sites it bought over the South Street Bridge it can eventually develop, Smith said. If and when CHOP decides to go forward with building its master plan, Smith speculates Wanamaker and 3535 Market St., where CHOP signed last fall a five-year lease on 226,000 square feet, could eventually see “holes” open up.

“It depends on how the other buildings are priced out,” Smith said. “At the end of the day, it’s a cost exercise.”

The expansion part of the lease does help the Central Business District absorb some excess space in the market. Even though the lease doesn’t figure into first quarter data, the CBD is showing some slight signs of improvement. It saw vacancy stay flat at 14.2 percent compared with the end of the year and average rents rise by 75 cents a square foot in Class A, B and C space, according to first quarter data.

Absorption, or the amount of space that was taken off of the market, is in positive territory, however, it is concentrated in Class A space where tenants continue a flight-to-quality. Top-tier buildings experienced 233,191 square feet of positive absorption in the quarter while Class B and Class C were both negative, the research said."

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